bozhan_tif_ch11
Chapter 11 Purchasing
TRUE/FALSE
1.Selecting suppliers and negotiating terms are part of Purchasing’s role in a business.
Answer: True
Reference: Introduction
Difficulty: Easy
Keywords: purchasing, negotiating
2.For the average manufacturer, over 50 percent of the value of shipments comes from
materials.
Answer: True
Reference: Why Purchasing is Critical
Difficulty: Easy
Keywords: material, value
https://www.sodocs.net/doc/933104751.html,pany A spends $250 million purchasing materials and subassemblies that it processes
and sells for a total of $350 million. The cost of goods sold by Company A is $350 million.
Answer: False
Reference: Why Purchasing is Critical
Difficulty: Easy
Keywords: CGS, cost of goods sold
4.The ratio of earnings to sales for a given time period is a firm’s profit margin.
Answer: True
Reference: Why Purchasing is Critical
Difficulty: Easy
Keywords: profit, profit margin
5.The first step of the purchasing process is to select the supplier.
Answer: False
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: needs identification, supplier selection
6. A typical reorder point system has a minimum inventory level and a prespecified order
quantity.
Answer: True
Reference: The Purchasing Process
Difficulty: Easy
Keywords: reorder, reorder point, inventory, quantity
7.In the description activity of the purchasing process, the product should be described only by
brand or specification.
Answer: False
Reference: The Purchasing Process
Difficulty: Easy
Keywords: description, brand, specification
8.Maverick spending is often promoted by top management as a way to improve the bottom
line and break out of a purchasing cycle.
Answer: False
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: maverick spending
9.When a preferred supplier does not exist, competitive bidding and negotiation are two
methods commonly used for final supplier selection.
Answer: True
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: preferred supplier, bidding, negotiation
10.The request for quotation is a formal request for suppliers to deliver a product or service that
includes key terms and conditions, such as price, delivery, and quality requirements.
Answer: False
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: RFQ, PO, request, quotation, purchase, order
11.In a cost-based contract, the stated price does not change, regardless of fluctuations in the general overall economic conditions.
Answer: False
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: cost-based contract
https://www.sodocs.net/doc/933104751.html,e of EDI in the supply chain has lead to shorter lead times and lower inventory.
Answer: True
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: EDI, electronic data interchange
AACSB: Use of Information Technology
13.Money is automatically drawn from the bu yer’s account and deposited into the supplier’s
account in an electronic funds transfer (EFT)
Answer: True
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: EFT, electronic funds transfer
AACSB: Use of Information Technology
14.A good example of purchase consolidation would be for a company to have one purchasing
agent place all of the orders rather than employing multiple agents..
Answer: False
Reference: Spend Analysis
Difficulty: Moderate
Keywords: consolidation, purchase consolidation
MULTIPLE CHOICE
15.Firms do not compete only against global competitors, but against:
a.their suppliers.
b.themselves.
c.the customers of their competitors.
d.their competitors’ supply chains.
Answer: d
Reference: Why Purchasing is Critical
Difficulty: Easy
Keywords: supply chain
16.The percentage of value of shipments that come from materials for the average manufacturer
is:
a.greater than or equal to 40 and less than or equal to 49 percent.
b.greater than or equal to 50 and less than or equal to 59 percent.
c.greater than or equal to 60 and less than or equal to 69 percent.
d.greater than or equal to 70 percent.
Answer: b
Reference: Why Purchasing is Critical
Difficulty: Easy
Keywords: percentage, value, purchased
17.The ratio of earnings to sales for a given time period is the:
a.cost of goods sold.
b.merchandise inventory.
c.profit margin.
d.return on assets.
Answer: c
Reference: Why Purchasing is Critical
Difficulty: Moderate
Keywords: ratio, profit margin, earnings, sales
18.The analyst turned on his banker’s lamp, adjusted his eye shade, and slowly pulled a legal
pad from his desk. His weathered hands punched the buttons on his desk calculator
deliberately as he divided earnings by total assets in order to calculate:
a.return on assets.
b.cost of goods sold.
c.merchandise inventory.
d.profit margin.
Answer: a
Reference: Why Purchasing is Critical
Difficulty: Moderate
Keywords: ROA, return on assets
19.Flingers Inc., reveals the following information in their annual report for FY 2004.
Earnings and Expenses
Sales $10,000,000
Cost of goods sold $5,000,000
Pre-tax earnings $500,000
Selected Balance Sheet Items
Merchandise inventory $80,000
Total assets $2,000,000
What is Flingers’ return on assets?
a.16%
b.20%
c.25%
d.40%
Answer: c
Reference: Why Purchasing is Critical
Difficulty: Moderate
Keywords: ROA, return, assets
AACSB: Analytic Skills
20.The phenomenon that a dollar in cost savings increases pretax profits by a dollar, while a
dollar increase in sales increases pretax profits only by the dollar multiplied by the pretax profit margin is known as the:
a.profit margin.
b.return on assets.
c.saving to spending ratio.
d.profit leverage effect.
Answer: d
Reference: Why Purchasing is Critical
Difficulty: Moderate
Keywords: profit leverage effect, profit, leverage
21.The classic purchasing process begins with:
a.needs identification.
b.description.
c.supplier selection.
d.depletion.
Answer: a
Reference: The Purchasing Process
Difficulty: Easy
Keywords: purchasing, process, needs identification
22.The cashier waved the can of golden hominy across the holographic bar code reader and it
emitted a piercing beep. At the same time the customer’s bill was rising, the grocery store’s inventory was automatically being reduced by 1 can of golden hominy down to 3 cans. This was the bare minimum amount of hominy the store manager dared carry in inventory, so the computer system automatically sent a message to the hominy man, who loaded a few cases onto his delivery truck for tomorrow morning’s trip to replenish the store. This is a classic example of:
a. a request for quotation.
b.description by brand.
c. a reorder point system.
d. a purchase requisition system.
Answer: c
Reference: The Purchasing Process
Difficulty: Easy
Keywords: purchasing, process, description, brand
23.A description method used when a product or service is proprietary or when there is a
perceived advantage to using a particular supplier’s product or services is:
a.description by market grade.
b.description by brand.
c.description by specification.
d.description by performance characteristics.
Answer: b
Reference: The Purchasing Process
Difficulty: Easy
Keywords: purchasing, process, description, brand
24.A supplier that has previously demonstrated its performance capabilities through purchase
contracts may well receive:
a.maverick status.
b. a request for description.
c.preferred supplier status.
d. a request for proposal.
Answer: c
Reference: The Purchasing Process
Difficulty: Easy
Keywords: purchasing, preferred supplier
25.Terms and conditions for a purchased service that indicate what services will be performed
and how the service provider will be evaluated are called a:
a.request for quotation.
b.bid specification.
c.preferred supplier contract.
d.statement of work.
Answer: d
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: purchasing, process, statement of work, receipt, inspection
26.The two basic types of purchasing contracts are:
a.fixed-price and cost-based.
b.bid-rigged and cost-plus.
c.cost-zero and fixed-variable.
d.fixed-quantity and variable-cost.
Answer: a
Reference: The Purchasing Process
Difficulty: Easy
Keywords: purchasing, process, fixed-price, cost-based
27.The purchasing team examined all of their purchasing patterns in order to identify any
irregularities or possible areas of cost savings in a little scheme they liked to call:
a.internal auditing.
b.purchase consolidation.
c.spend analysis.
d.cooking the books.
Answer: c
Reference: Spend Analysis
Difficulty: Moderate
Keywords: spend analysis
28.Which of the following is required in order to execute a successful spend analysis?
a.Graphics capabilities found in charting packages and Visio.
b. A sophisticated statistical software package such as SPSS or SAS.
c.Ability to analyze large quantities of data.
d. A minimum of six months uninterrupted work tim
e.
Answer: c
Reference: Spend Analysis
Difficulty: Moderate
Keywords: spend analysis
FILL IN THE BLANK
29.The purchasing team occasionally examined their spending patterns to identify irregularities as part of a(n) __________.
Answer: spend analysis
Reference: Introduction
Difficulty: Easy
Keywords: spend analysis
30.Profit margin is the ratio of __________ to __________.
Answer: earnings, sales
Reference: Why Purchasing is Critical
Difficulty: Difficult
Keywords: profit margin, earnings, sales
31.The amount of money that a company paid for inventory it has on hand is the __________.
Answer: merchandise inventory
Reference: Why Purchasing is Critical
Difficulty: Moderate
Keywords: merchandise, inventory
32.In the purchasing process, the order cycle begins with __________.
Answer: purchase order preparation
Reference: The Purchasing Process
Difficulty: Difficult
Keywords: purchasing, process, order cycle, purchase order
33.__________ is a purchasing description method that focuses attention on the outcomes the
customer wants.
Answer: Description by performance characteristics
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: description, performance, characteristics
34.The second step of the purchasing process may be performed a number of ways. Perhaps the
best way for standard items is __________ which is a description method that is applicable when the requirements are well understood.
Answer: Description by market grade or industry standard
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: description, market grade, industry standard
35.A company that regularly outsources goods and services may have established close
relationships with their sources and therefore will allow these sources the first opportunity to bid for new business needs. These sources are known as __________.
Answer: preferred suppliers
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: preferred supplier
36.The competitive bidding approach where the buyer identifies potential qualified suppliers and
directs them to a specific web site at a designated time to bid for the business is called a(n) __________.
Answer: reverse auction/e-auction
Reference: The Purchasing Process
Difficulty: Difficult
Keywords: electronic funds transfer, EFT
AACSB: Use of Information Technology
37.Business partners that transfer payments between banks using an information systems are
using __________.
Answer: electronic funds transfer (EFT)
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: electronic funds transfer, EFT
AACSB: Use of Information Technology
38.Horace Smithfield, Esq., was insistent that he pay a flat rate of $10,000,000 and not a penny
more to transfer his inheritance through your checking account so he could move vast sums of cash out of his country. Sure, he had fallen out of favor with the government and the
economy in his country was in a dire situation, but a deal was a deal and $10,000,000 was all he could afford to pay. This type of purchase contract was to be a(n) __________ if you
would kindly provide your account information..
Answer: fixed-price contract
Reference: The Purchasing Process
Difficulty: Difficult
Keywords: purchase, fixed-price
39.Authorization to a supplier to deliver product, known as a(n) __________ increasingly takes
the form of __________.
Answer: purchase order (PO), electronic data interchange (EDI)
Reference: The Purchasing Process
Difficulty: Difficult
Keywords: purchase consolidation, consolidation
AACSB: Use of Information Technology
40.Businesses can achieve higher overall purchasing volumes and leverage purchasing efforts by
__________.
Answer: purchase consolidation
Reference: Spend Analysis
Difficulty: Difficult
Keywords: purchase consolidation, consolidation
ESSAY
41.Briefly discuss the three trends that make the purchasing function so critical in today’s
business climate.
Answer: Several trends have pushed purchasing to the forefront of the business
consciousness; the changing global competitive landscape, the financial impact of
purchasing, and its impact on performance dimensions.
The first trend, the changing global competitive landscape, is best summarized by the
statement that firms do not compete only against global competitors, but also against their supply chains. In order to compete globally, you must purchase globally from world-class suppliers. The financial impact of purchasing is best illustrated by two numbers, the
percentage of purchased materials that go into shipped materials and the profit leverage.
For most manufacturers, over 50% of the value of shipments comes from materials and
for some services, the number is much higher. The profit leverage effect illustrates the
value of not spending a dollar; the firm needs to sell far more than a dollar to make up for
a dollar spent. Finally, purchased goods and services can have a major effect on other
performance dimensions such as quality, delivery, and the ability of companies to exploit
new technologies. Purchasing can also help an organization incorporate state-of-the-art
technologies into its products and services.
Reference: Why Purchasing is Critical
Difficulty: Difficult
Keywords: global, financial, performance
42.What takes place in each step in the purchasing process and which step is most critical?
Answer: Answers may vary on which step is most critical. The purchasing process
consist of the steps of needs identification, description, supplier selection and contracting, ordering, follow-up and expediting, receipt and inspection, settlement and payment, and
records maintenance.
Needs, or requirement, identification pulls the trigger on the entire process. The need may be automatically identified with a reorder point system or with a manual request from an employee. Description consists of the communication of a user’s needs to potential
suppliers in the most efficient and accurate way possible. Description may be by market
grade, brand, specification or performance characteristic. If necessary, a list of potential
suppliers is developed by various means and these suppliers are evaluated to determine
whether their cost, quality, deliverability, and flexibility are suitable and whether they are
a good fit with the company. Supplier selection is based on criteria deemed important by
the purchasing professional and may be based on any number of factors such as financial solvency, environmental compliance, planning and control systems, and others, in
addition to those in the preceding step. A paper or electronic purchase order that
authorizes a supplier to deliver a product or service is generated and if necessary, the
purchasing agent must follow-up or expedite if time requirements are not being met or if changes to the original purchase order are necessary. When goods or services are
delivered, the purchasing company receives and inspects them to verify that they meet
their requirements and if so, is then obligated to pay for goods or services rendered.
Finally, a record of critical events associated with the purchase is entered into a supplier
performance database.
Reference: The Purchasing Process
Difficulty: Difficult
Keywords: purchasing process
AACSB: Reflective Thinking
43.What are some appropriate uses of information technology in the purchasing process?
Answer: The purchasing process begins with needs identification, and one method
common to the retail sector is a reorder point system that continuously monitors the level of inventory in the system and may automatically submit a purchase order via EDI when the level reaches a predetermined amount. As the purchasing firm engages in supplier
selection and contracting, they may choose to advertise their need and select a supplier
using a reverse auction or an e-auction. This mechanism collects bids from suppliers so
the purchasing firm can select a bid, hence a supplier for the goods or services. Even if
the purchasing firm does not use a continuous inventory system that automatically orders, they still might choose to place their order using electronic data interchange (EDI) to
eliminate some paperwork and speed the transaction. Settlement and payment can be conducted using an electronic transfer of funds (EFT) which is the transfer of payment from the buyer’s bank to the supplier’s bank. Records maintenance can also be handled with information technology; the purchasing company may use some combination of accounting software, databases, and their inventory system to maintain records on all transaction.
Reference: The Purchasing Process
Difficulty: Moderate
Keywords: purchasing process
AACSB: Use of Information Technology, EDI, EFT, electronic, data